Q2 2026 Grown Rogue International Inc Earnings Call

Operator: As a reminder, during the course of this conference call, Grown Rogue's management may make forward-looking statements based on current expectations, estimates, and assumptions. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks are described in the Risk Factors section of the company's filings and other public disclosure materials. Any forward-looking statements made on this call speak only as of today, and Grown Rogue undertakes no obligation to update or revise them in the future, except as required by law. During today's call, we will also refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA. These measures do not have standardized meanings under GAAP and may not be comparable to similarly titled measures used by other companies.

Speaker #1: As a reminder, during the course of this conference call, Grown Rogue Spanish mid may make forward-looking statements based on current expectations estimates and assumptions.

Speaker #1: These statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks are described in the risk factor section of the company's filings and other public disclosure materials.

Speaker #1: Any forward-looking statements made on this call speak only as of today, and Grown Rogue undertakes no obligation to update or revise them in the future except as required by law.

Speaker #1: During today's call, we will also refer to certain non-cap financial measures including EBITDA and adjusted EBITDA. These measures do not have standardized meanings under GAAP and may not be comparable to similarly titled measures used by other companies.

Operator: Grown Rogue believes these measures provide useful supplemental information to investors, but they should not be considered a substitute for GAAP results. Our reconciliation to the most directly comparable GAAP measures is included in the press release issued earlier today. With that, I'll turn the call over to Obie Strickler, Chief Executive Officer of Grown Rogue. Obi, please go ahead.

Speaker #1: Grown Rogue believes these measures provide useful supplemental information to investors but they should not be considered a substitute for GAAP results. Our reconciliation to the most directly comparable GAAP measures is included in the press release issued earlier today.

Speaker #1: With that, I'll turn the call over to OB Strickler, Chief Executive Officer of Grown Rogue. OB, please go ahead.

Obie Strickler: Great. Thank you. Thanks everyone for joining today. Going to just try keeping today's commentary a little brief. Another very solid quarter. What continues to impress me the most is, we've talked about this a lot, just the amazing team that we have at Grown Rogue. We're running a few projects in parallel right now with New Jersey, Minnesota, and Illinois, and the team is just working their tails off every day to bring these projects forward into fruition. The problem-solving, collaboration, passion, and intensity just continues to inspire me every day to do my best work individually, and watching the team execute has just been pretty spectacular in 2026 and previously. I hadn't worked in too many industries, as many of you probably know. It's probably a factor in how focused we maintain ourselves at Grown Rogue.

Speaker #2: Great. Thank you. And thanks, everyone, for joining today. I'm going to try and just try to keep in today's commentary a little brief. Another very solid quarter.

Speaker #2: I'm going to continue to impress me the most is we talked about this a lot, just the amazing team that we have at Grown Rogue.

Speaker #2: We're running a few projects in parallel right now with New Jersey, Minnesota, and Illinois. The team is just working their tails off every day to bring these projects forward into fruition.

Speaker #2: The problem-solving, collaboration, passion, and intensity just continues to inspire me every day to do my best work individually and watching the team execute has just been pretty spectacular in '26 and previously.

Speaker #2: I haven't worked in too many industries as many of you probably know. It's probably a factor in how focused we maintain ourselves at Grown Rogue.

Speaker #2: But it sure feels like this one brings a lot of unique set of challenges and just difficulties and all the things that go in with being a successful campus business.

Obie Strickler: It sure feels like this one brings a lot of unique set of challenges and just difficulties and all the things that go in with being a successful cannabis business. So, we spend a lot of time recruiting for experience, agility. What we've seen so far, which is kind of awesome, is that our culture ends up largely being self-selecting. We end up getting a lot of references from our team and those close to us with great talent and people that want to join the mission that we set ourselves out on. Before I get into some market-specific comments, one thing I wanted to share today was the internal pillars that we refined last year as we really began to lean into our growth efforts. We worried a lot, myself included, about keeping our scrappy, entrepreneurial, get shit done culture as we continue to expand.

Speaker #2: And so we spend a lot of time recruiting for experience, agility, and what we've seen so far, which is kind of awesome, is that our culture ends up largely being self-selecting we end up getting a lot of references from our team and those close to us with great talent and people that want to join kind of the mission that we set ourselves out on.

Speaker #2: Before I get into some market-specific comments, one thing I wanted to share today was the internal pillars that we refined last year. As we really began to lean into our growth efforts, we worried a lot myself included about keeping our scrappy entrepreneurial get-shit-done culture as we continue to expand.

Speaker #2: And we're going to do our best to try and maintain that and be intentional about avoiding extra management layers, unnecessary bureaucracy, and all the things that kind of slow down your nimbleness and flexibility.

Obie Strickler: We're going to do our best to try and maintain that and be intentional about avoiding extra management layers, unnecessary bureaucracy, and all the things that slow down your nimbleness and flexibility. At our core, we're a team of doers, and maintaining that is going to be super critical to our success as we go forward. Again, last year, we clarified and defined our core beliefs as an organization. We coined these the pillars of Grown Rogue culture. Love the plant. With our Rogue Valley heritage, cultivation is our passion, and it starts with sourcing and breeding the best genetics. Our genetics reflects the creative inspiration of our team and company. Number 2, we are craft cultivators. Our goal isn't to be the biggest, but to have right-sized facilities and production goals that allow us to produce boutique-quality flower at scale.

Speaker #2: At our core, we're a team of doers. And maintaining that is going to be super critical to our success as we go forward. So again, last year, we clarified and kind of defined our core beliefs as an organization.

Speaker #2: We coined these. The pillars of Grown Rogue culture. Love the plant. With our Rogue Valley heritage cultivation as our passion and it starts with sourcing and breeding the best genetics.

Speaker #2: Our genetics reflects the creative inspiration of our team and company. Number two, we are craft cultivators. Our goal isn't to be the biggest but to have right-sized facilities and production goals that allow us to produce boutique-quality flour at scale.

Speaker #2: We are consumers at our core and pride ourselves on sharing our craft with the world. Number three, continuous improvement. We are constantly iterating and improving our practices to increase quality and yield.

Obie Strickler: We are consumers at our core and pride ourselves on sharing our craft with the world. Number 3, continuous improvement. We are constantly iterating and improving our practices to increase quality and yield. This relentless focus ensures we continue to win in a rapidly maturing and increasingly competitive industry. Number 4, cost control. We aggressively manage costs across the business to ensure the best possible pricing to our customers and ensure our business makes money regardless of market pricing. If it doesn't help the plans for our customers, why are we doing it? Number 5, the last one, team first mentality. Everything we do starts with our amazing team. It's the engine that drives us every day, filled with fun, respect, accountability, and hard work. At Grown Rogue, we don't just grow plants, we grow leaders. Those are the 5 pillars.

Speaker #2: This relentless focus ensures we continue to win in a rapidly maturing and increasingly competitive industry. Number four, cost control. We aggressively manage costs across the business to ensure the best possible pricing to our customers.

Speaker #2: And ensure our business makes money regardless of market pricing. If it doesn't help the plants or our customers, why are we doing it? Number five, the last one: team-first mentality.

Speaker #2: Everything we do starts with our amazing team. It's the engine that drives us every day, filled with fun, respect, accountability, and hard work. At Grown Rogue, we don't just grow plants.

Speaker #2: We grow leaders. So those are the five pillars. It's just something, again, we put together from our team just to refine and really give clarity to how we show up every day in the intention that we bring into our working environment.

Obie Strickler: Just something, again, we put together for our team just to refine and really give clarity to how we show up every day and the intention that we bring into our working environment. Getting into the markets. I'll start with New Jersey. Honestly, just particularly pleased with how New Jersey has been progressing, has really get our flywheel going. Seeing that 100% of our packaged flower sales this quarter, coupled with we actually purchased some bulk products in the open market to continue to fulfill the demand that our brands have started to demand inside of the open market out there. That was an awesome addition to what we did in Q2. Actively constructing to get to our full 16,000 square foot capacity. Want to reiterate, we expect to have that completed by the year-end.

Speaker #2: So getting into the markets. So I'll start with New Jersey. Honestly, just particularly pleased with how New Jersey has been progressing is really get our flywheel going.

Speaker #2: Seeing that 100% of our packaged flour sales this quarter, coupled with the fact that we actually purchased some bulk product in the open market to continue to fulfill the demand that our brands have started to kind of demand inside of the market out there.

Speaker #2: So that was kind of an awesome kind of addition to what we did in Q2. Actively constructing to get to our full 16,000 square foot capacity and want to reiterate we expect to have that completed by the year-end.

Obie Strickler: That involves turning on 3 additional flower rooms, plus a mother room. Just getting that full facility built out and to its 100% capacity. Still have some work to do to get our yields and costs to the excellence we're seeing in Michigan and Oregon, but feeling good about where we sit and how this canopy expansion will bode as we finish up 2026 and move into 2027. One thing I wanted to call out in New Jersey is around our ASP. You will see, if you're looking at the KPIs, how it increased from last quarter as we realized that one of our products, it's called Yeti Ready to Roll, was being included in our ASP. This product is 100% comprised of shake that would normally go to extractors for around CAD 250 a pound.

Speaker #2: That involves turning on three additional flour rooms, plus some other room, but just getting that full facility built out and to its 100% capacity.

Speaker #2: Still have some work to do to get our yields and costs to the excellence we're seeing in Michigan and Oregon. But feeling good about where we sit.

Speaker #2: And how this canopy expansion will bode as we finish up 2026 and move into 2027. One thing I wanted to call out in New Jersey is around our ASP.

Speaker #2: You will see if you're looking at the KPIs, I would increase from last quarter as we realize that one of our products is called Yeti Ready to Roll was being included in our ASP.

Speaker #2: This product is 100% comprised of shake that would normally go to extractors. For around $250 a pound. But with demand so high in New Jersey, and kind of the opportunity set that sits there, what we've been doing is taking that material grinding it up and putting it into Yeti ounce bags that we call ready to roll.

Obie Strickler: With demand so high in New Jersey and the opportunity set that sits there, what we have been doing is taking that material, grinding it up, and putting it into Yeti ounce bags that we call Ready to Roll, and selling this for around CAD 1,000 a pound. That being said, this weight is not included in our flower yields and the way we like to manage our business. Then with that lower price point, was artificially impacting our flower ASPs. We have chosen to exclude that inside of our reporting metrics. Oregon was worried starting the year around where Oregon was sitting, especially around the pricing environment. It was really nice to see some modest price recovery in Oregon over the last quarter, and we are definitely hoping that continues. Demand remains high.

Speaker #2: And selling this for around $1,000 a pound. That being said, this weight is not included in kind of our flour yields and the way we like to manage our business.

Speaker #2: And then with that lower price point, as artificially impacting our flour ASPs. So we've chosen to exclude that inside of our reporting metrics. Oregon, was worried starting the year around where Oregon was sitting.

Speaker #2: Especially around the pricing environment. It was really nice to see some modest price recovery in Oregon over the last quarter. And we're definitely hoping that continues.

Speaker #2: Demand remains high. The team is super locked in and executing at a high level. As we continue to manage a very competitive marketplace. We've completed a lot of the technical improvements that we talked about last call.

Obie Strickler: The team is super locked in and executing at a high level as we continue to manage a very competitive marketplace. We have completed a lot of the technical improvements that we talked about last call, that are driving some of the incredible numbers out of Michigan. Excited to continue to see yield and cost improvements in Oregon over the coming months and throughout the rest of activity there. Switching to Michigan, 90 gram square foot of flower and a CAD 277 pound of costs. I think that says it all. I don't think I was really excited to see that. There is not a lot to elaborate on there. The execution of that team, particularly against the challenging state environment right now in terms of the pricing environment that we are living in, has been pretty amazing. Just watching them lean in, grind, push forward, great product, good yields, record yields, frankly.

Speaker #2: That are driving some of the incredible numbers out of Michigan. So excited to continue to see yield and cost improvements in Oregon over the coming months and throughout the rest of kind of activity there.

Speaker #2: Switching to Michigan. I mean, 90 grand square foot of flour and a 277 pound of costs. I think that kind of says it all.

Speaker #2: I don't think that was really, really excited to see that. There's not a lot to kind of elaborate on there. The execution of that team, particularly again, the challenge in state environment right now in terms of the pricing environment that we're living in has been pretty amazing.

Speaker #2: Just watching them lean in, grind, push forward, great product, good yields, record yields, frankly. And just, yeah, super excited about the way they're navigating this pricing cycle, the wholesale tax that was implemented earlier this year.

Obie Strickler: Just, yeah, super excited about the way they are navigating this pricing cycle, the wholesale tax that was implemented earlier this year. They are setting new standards for what we can expect and how the rest of our states are going to push towards cost control and growing good, strong yields. Illinois, we got plants into the building in early June and are expecting our first harvest in September. It has been super great to watch the team come together. I was talking to one of our guys who is out there this week, our VP of Production, and just the energy, the culture, the way everything is coming together out there is super exciting. Like with anything, startup, new project, takeover, the fires that come with that as you are turning back on a facility, just really impressed watching the way the team has navigated that.

Speaker #2: And they're setting new standards for what we can expect and how the rest of our states are going to push towards cost control. And growing good, strong yields.

Speaker #2: Illinois, we got plants into the building in early June. And are expecting our first harvest in September. It's been super great to watch the team come together.

Speaker #2: I was talking to one of our guys who's out there this week. Our VP of production, and just the energy, the culture, the way everything is coming together out there is super exciting.

Speaker #2: And with anything, startup, new project, takeover, the fires that come with that as you're turning back on a facility. Just really impressed watching the way the teams navigated that.

Speaker #2: As you know, due to regulatory reasons, we started with 5,000 square feet. We've already submitted 5,000 square feet of canopy. We've submitted already and gotten approval to go to 10,000 square feet.

Obie Strickler: As you know, due to regulatory, we started with 5,000 square feet. We have already submitted 5,000 square feet of canopy. We have submitted already and gotten approval to go to 10,000 square feet, which we are in the process of completing. We need to do a little bit of upgrade work to meet our standards. There are some lights to order, a little bit of retrofitting, which we anticipated. We are expecting to be at the full 10,000 square feet of flower and canopy by the end of the year. Yeah, again, excited about Illinois, excited to bring that product into the market and looking forward to seeing what the initial output in terms of quality will be. Minnesota, at the finish line of phase I, and we talked, working through some last items with local and state on occupancy metrics. Always dealing with the last big push on the construction side.

Speaker #2: Which we're in the process of completing. We need to do a little bit of upgrade work to kind of meet our standards. There's some lights to order, a little bit of retrofitting.

Speaker #2: Which we anticipated. And we're expecting to be at the full 10,000 square feet of flour and canopy by the end of the year. So yeah, again, excited about Illinois, excited to bring that product into the market.

Speaker #2: And looking forward to seeing what the initial output in terms of quality will be. Minnesota, at the finish line of phase one. We talked working through some last items with local and state on kind of occupancy metrics.

Speaker #2: Always dealing with the last kind of big push on the construction side. But hopefully—you can never really gauge the timeline when you have regulatory kind of uncertainty.

Obie Strickler: Hopefully, and you can never really gauge timeline when you have regulatory kind of uncertainty, very optimistic that we're going to be able to bring plants into the building sometime in August. Then very optimistic around our previously stated timelines, with first harvest by the end of the year, and then selling products in the Minnesota market starting in Q1 of 2027. Team is a consistent theme for us, and particularly excited about how the team is stepping up in Minnesota. Our previous general manager in Oregon, who had been with us for 5 or 6 years, is relocating to Minnesota to get that project stood up for us.

Speaker #2: We're very optimistic that we're going to be able to bring plants into the building sometime in August, and also very optimistic about our previously stated timelines, with first harvest by the end of the year.

Speaker #2: And then selling products in the Minnesota market, starting in Q1 of '27. Team is a consistent theme for us. And particularly excited about how the team is stepping up in Minnesota.

Speaker #2: Our previous general manager in Oregon, who had been with us for five or six years, is relocating to Minnesota to get that project stood up for us.

Speaker #2: And then also our cultivation leadership, we spending a considerable amount of time on site over the next 6 to 12 months to make sure we get our production dialed in and just hit that market with our best foot forward.

Obie Strickler: Then also our cultivation leadership will be spending a considerable amount of time on site over the next 6 to 12 months, to make sure we get our production dialed in and just hit that market with our best foot forward. Again, great quarter. Excited to see what the team is doing. Excited about the expansion and the projects in front of us. Yeah, just head down, continuing to work. With that, I'll hand it over to Josh.

Speaker #2: So again, great quarter. Excited to see what the team is doing—excited about the expansion and the projects in front of us.

Speaker #2: And yeah, just head down, continuing to work. So with that, I'll hand it over to Josh.

Speaker #1: All right. Excuse me. Thanks, Obie. I just wanted to take a minute to talk about capital allocation and how we keep our discipline with business development, and reflect on the time and energy that I've continued to spend on evaluating distress in the industry.

Josh Rosen: Right. Excuse me. Thanks, Obie. I just wanted to take a minute to talk about capital allocation and how we keep our discipline with business development, and reflect on the time and energy that I've continued to spend on evaluating distress in the industry. I think the first mention here, although not something worthy of disclosure on our end at the time, it is publicly available information that we bid for 4Front's Massachusetts operations, and ultimately the bidding became too rich for us earlier this year. What was most intriguing to us in this deal was a very well-constructed cultivation facility that was right in our wheelhouse, about 15,000 square feet of flowering canopy in a 50,000 square foot building. It was a right-sized opportunity that also included a couple of high-performing stores.

Speaker #1: And I think the first mention here, although not something worthy of disclosure on our end at the time, it is publicly available information that we bid for Forefront's Massachusetts operations.

Speaker #1: And ultimately, the bidding became too rich for us earlier this year. What was most intriguing to us in this deal was a very well-constructed cultivation facility that was right in our wheelhouse, about 15,000 square feet of flowering canopy, in a 50,000 square foot building.

Speaker #1: It was a right-sized opportunity that also included a couple of high-performing stores. And we had high conviction in the execution, what a competitive market in Massachusetts.

Josh Rosen: We had high conviction in the execution in what is a competitive market in Massachusetts. Our approach to capital allocation is likely different than what I perceive to be the situations for most of our peers in the industry, in large part because it comes through the lens of applying our core competency. That core competency that Obie alludes to, the efficient production of quality flower. Putting that into an appropriate infrastructure is really the core focus of our. Excuse me. Going in circles there for a moment. It is the core focus of our business development plans. So when you take that flower-forward ethos that you hear from us frequently, it doesn't preclude us from including manufacturing or retail when we look at deals. It's one of the reasons that I alluded back to the Massachusetts example a moment ago.

Speaker #1: Our approach to capital allocation is likely different than what I perceive to be the situation for most of our peers in the industry, in large part because it comes through the lens of applying our core competency.

Speaker #1: That core competency that Obie alludes to, the efficient production of quality flour. Putting that into an appropriate infrastructure is really the core focus of our excuse me, of our going in circles here for a moment.

Speaker #1: It is the core focus of our business development plans. And so, when you take that "flour forward" ethos that you hear from us frequently, it doesn't preclude us from including manufacturing or retail when we look at deals.

Speaker #1: And it's one of the reasons that I alluded back to the Massachusetts example of a moment ago. If we're taking something on, it's because of how we trust our team's core competency to be the value driver.

Josh Rosen: If we are taking something on, it is because of how we trust our team's core competency to be the value driver. We also do not have unlimited bandwidth, and this ties directly to being choosy to those situations that we think we can generate CAD 0.75 of operating profit for every CAD 1 we invest. We do not think that this can happen immediately in most deals, but once we have had 12 to 18 months to improve performance, this is the return profile we are after. This is a high hurdle. There are a lot of opportunities to buy private or public players with existing profits that would be a discounted EBITDA multiple, perhaps benefiting from arbitrage between our public multiple and what we can buy. This is not our approach.

Speaker #1: We also don't have unlimited bandwidth. And this ties directly to being choosy to those situations that we think we can generate 75 cents of operating profit for every dollar we invest.

Speaker #1: We don't think that this can happen immediately in most deals, but once we've had 12 to 18 months to improve performance, this is the return profile we're after.

Speaker #1: This is a high hurdle. There are a lot of opportunities to buy private or public players with existing profits that would be a discounted EBITDA multiple.

Speaker #1: Perhaps benefiting from arbitrage between our public multiple and what we can buy. But this is not our approach. We aim to map our bandwidth against true value-enhancing opportunities to grow our platform, not for scale itself, but for what we see as the financial and team-building benefits of bringing our passion for quality products to customer customers.

Josh Rosen: We aim to map our bandwidth against true value-enhancing opportunities to grow our platform, not for scale itself, but for what we see as the financial and team-building benefits of bringing our passion for quality products to more customers. I will end by highlighting that in Bengal Capital's Q2 investor update that gets posted on Substack, we wrote about cultivation math specifically, as in the math of cultivation. I will warn that it is a little bit of a long essay, is how I would describe it. But it ties directly into why I'm in this seat, and my view that this is one of the best opportunities for adding value that I have seen in my career. I will now hand it over to Andrew.

Speaker #1: I'll end by highlighting that in Bengal Capital's second quarter investor update that gets posted on Substack, we wrote about cultivation math specifically, as in the math of cultivation.

Speaker #1: And I'll warn that it's a little bit of a long essay is how I would describe it. But it ties directly into why I'm in this seat and my view that this is one of the best opportunities for adding value that I've seen in my career.

Speaker #1: I will now hand it over to Andrew.

Speaker #2: Thanks, Josh. All right. Briefly, I'd just like to remind everybody that we do report our Michigan excise tax, as revenue, as we do charge this out to our customers.

Andrew Marchington: Thanks, Josh. All right. Briefly, I would just like to remind everybody that we do report our Michigan excise tax as revenue, as we do charge this out to our customers. The exposure to that tax is often shared with customers, but ultimately, we do have to pay this amount to the state, so, the corresponding expense is recorded in general and administrative expenses. Really just going to keep this short and sweet. We had a great, clean, easy quarter. Reported out pretty quickly. The team's got a lot of work to do and a lot of projects in front of it for Q3. So we are going to put our heads down and get back to it and execute. Thanks, everyone.

Speaker #2: The exposure to that tax is often shared with customers. And but ultimately we do have to pay this amount to the state. So the corresponding expense is recorded in general and administrative expenses.

Speaker #2: And really just going to keep this short and sweet. We had a great, clean, easy quarter. Reported out pretty quickly. And the team's got a lot of work to do and a lot of projects in front of it for Q3.

Speaker #2: So we're going to put our heads down and get back to it next Q. Thanks, everyone.

Obie Strickler: Great. Thank you, guys. With that, we will open it up to any questions.

Speaker #3: Great. Thanks, you guys. With that, we will open it up to any questions.

Speaker #4: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press start and one on your touchstone phone.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then one on your touchtone phone. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then the number two. We'll pause for a moment to compile the Q&A roster. We have a question from Aaron Edelheit from Mindset Capital. Your line is open.

Speaker #4: You will hear a tone acknowledging your request. If you're using a speakerphone, please speak up your handset before pressing any keys. To withdraw your question, please press start and the number two.

Speaker #4: We'll pause for a moment to compile the Q&A roster. We have a question from Aaron Adelheid from Mindset Capital. Your line is open.

Speaker #3: Hey, guys. I wanted to congratulate you specifically on some of the cost figures and the production. When I'm looking at Michigan, I think that that's a quarterly record in terms of harvest and cost.

Aaron Edelheit: Hey, guys. I wanted to congratulate you specifically on some of the cost figures and the production. When I'm looking at Michigan, I think that that's a quarterly record in terms of harvest and cost. I wanted to ask, is there any reason why what you're doing in Michigan couldn't be replicated in Oregon, maybe in yield, let's just talk yield, and in New Jersey and eventually Illinois and Minnesota long term?

Speaker #3: And I wanted to ask, is there any reason why what you're doing in Michigan couldn't be replicated in Oregon? Maybe in Yale, let's just talk yield.

Speaker #3: And in New Jersey and eventually Illinois and Minnesota, long term.

Speaker #2: From a practical perspective, Aaron, and good question. No. There is no reason why we should not be able to replicate those each market's going to be slightly different in terms of how we manage volume of capacity based on what we think the market demand is.

Obie Strickler: From a practical perspective, Aaron, good question, no. There is no reason why we should not be able to replicate those. Each market's going to be slightly different in terms of how we manage volume of capacity based on what we think the market demand is. Each market will have slightly different kind of mechanical support systems to kind of influence this additional technology we put in to drive these yields and effectively lower the costs. We started installing a lot of these in Oregon, so I would expect to see that coming kind of Q3, Q4, as we got a big chunk of our facility kind of outfitted for relatively low cost. I think I mentioned last time, this is measured in very low six figures to do this work, which has a fantastic ROI.

Speaker #2: And then each market will have slightly different kind of mechanical support systems to kind of influence this additional technology we put in to drive these yields and effectively lower the costs.

Speaker #2: We started installing a lot of these in Oregon, so I would expect to see that coming in Q3 or Q4, as we get a big chunk of our facility outfitted at a relatively low cost.

Speaker #2: Like I mentioned last time, this is measured in very low six figures to do this work, which has a fantastic ROI. Illinois may be a little different in terms of the mechanical needs in order to do that.

Obie Strickler: Illinois may be a little different in terms of the mechanical needs in order to do that. Your cost may go up, as we evaluate that market. Same thing in New Jersey, same thing in Minnesota, as we evaluate the markets and look at where the demand sits, what the cost profile is. It's definitely set a new standard in terms of what the expectations and the potential is inside of our assets. Actively evaluating those to look at when's the right time, what is the cost to install them, how does that work out. Again, our goal right now in New Jersey is get the rest of the building built, get the rest of the flower rooms turned on. We've already started doing some planning around how we would kind of construct this additional opportunity.

Speaker #2: And so your cost may go up. And so as we evaluate that market, same thing in New Jersey, same thing in Minnesota. As we evaluate the markets and look at where the demand sits, what the cost profile is, but it's definitely set a new standard in terms of what the expectations and the potential is inside of our assets.

Speaker #2: And so actively evaluating those to look at when's the right time and then what is the cost to install them and how does that work out.

Speaker #2: But again, our goal right now in New Jersey is to get the rest of the building built, get the rest of the flower rooms turned on.

Speaker #2: We've already started doing some planning around how we would kind of construct this additional opportunity.

Speaker #3: And then Illinois is just early, right? We're just getting that turned on. And we expect Minnesota to be kind of similar in terms of where we go. And so, one of the beauties in Oregon and Michigan, with these mature kind of markets, is we are able to make those decisions because we don't really want to build extra capacity.

Obie Strickler: Illinois is just early, right? We're just getting that turned on. We expect Minnesota to be kind of similar in terms of where we go. One of the beauties in Oregon and Michigan with these mature kind of markets is we are able to make those decisions because we don't really want to build extra capacity. This is an inexpensive way to get there. You look at Minnesota, and do you do this tech and get higher yields and less rooms? Do you build out more infrastructure? What's the trade-off there in terms of overall kind of production capacity? It's all things the team is working on, but it's not unlikely to think that 90 to 100 grams of square foot of flower and sub-CAD 300 pounds is the new standard of normal that we'll be pushing against.

Speaker #3: So this is an expensive way to get there. You're looking at Minnesota, and do you use this tech to get higher yields and less rooms?

Speaker #3: Do you build out more infrastructure? What's the trade-off there in terms of overall kind of production capacity? So, all things the team is working on, but it's not unlikely to think that 90 to 100 grams a square foot of flower and sub-$300 pounds is the new standard and normal that we'll be pushing against.

Aaron Edelheit: Great. Keep up the great progress. Thanks.

Speaker #3: Great. Keep up the great progress. Thanks.

Speaker #2: Thank you.

Obie Strickler: Thank you.

Speaker #4: Again, if you would like to ask a question, simply press star one on your touch-tone phone. There are no more questions at this time.

Operator: Again, if you would like to ask the question, simply press star then one on your touch-tone phone. There are no more questions at this time. Oh, we have a question from Brian Park. Your line is open.

Speaker #4: Oh, we have a question from Brian Park. Your line is open.

Speaker #5: Hey, guys. Congrats on the quarter. Just wondering what gives you the confidence to raise guidance?

Brian Park: Hey, guys. Congrats on the quarter. Just wondering what gives you the confidence to raise guidance?

Obie Strickler: Josh, you want to take that one?

Speaker #2: Josh, do you want to take that one?

Speaker #6: I will jump on this, Sophie. Yep, for sure. Yeah, it's really a function of obviously, as you get farther through the year, you have better visibility into what's closer to you.

Josh Rosen: I will jump on this, Obie. Yep, for sure. Yeah, it's really a function of, obviously, as you get farther through the year, you have greater visibility into what's closer to you. We're two quarters in, and I think a combination of seeing the production volumes in Michigan driving some revenue growth there, mixed with the, I'll call it pricing stability. It tends to be a little volatile in Oregon. At least Q2, we saw it stabilize and come back up a little bit. Gives us a little bit of comfort with respect to how the H2 of the year is shaping up, at least in terms of Q3 into Q4. Those underlying trends mixed with what Obie was referencing in New Jersey just give us a nice confidence that the business is performing consistently well.

Speaker #6: And so we're two quarters in, and I think in accommodation of seeing the production volumes in Michigan driving some revenue growth there, mixed with I'll call it pricing stability, it tends to be a little volatile.

Speaker #6: In Oregon, but at least second quarter, we thought stabilized and come back up a little bit. Gives us a little bit of comfort with respect to how the back half of the year is shaping up, at least in terms of third quarter into fourth quarter.

Speaker #6: And so those underlying trends mixed with what Sophie was referencing in New Jersey just gave us some nice confidence that the business is performing consistently well.

Speaker #6: We obviously had some pretty significant pricing headwinds last year and wanted to come into this year being at least cautious with respect to how the year was going to unfold, particularly in Oregon and Michigan.

Josh Rosen: We obviously had some pretty significant pricing headwinds last year, and wanted to come into this year being at least cautious with respect to how the year was going to unfold, particularly in Oregon and Michigan. Just how, call it more stability in those markets flow through was the primary catalyst mixed with just kind of ongoing confidence in New Jersey.

Speaker #6: And so just how, call it more stability in those markets flow through was the primary catalyst mixed with just kind of ongoing confidence in New Jersey.

Speaker #5: All right. This one's for Obie. I was just wondering your cost differences in each market and trying to separate out what you can control and what you can't.

Brian Park: All right. This one's for Obie. I was just wondering your cost differences in each market and trying to separate out what you can control and what you can't. What's the percentage of your cost that goes into energy? Is it much higher in New Jersey compared to other markets? That's all I got for you guys. Thank you.

Speaker #5: Are there what's the percentage of your costs that goes into energy? Is it much higher in New Jersey compared to other markets? That's all I got for you guys.

Speaker #5: Thank you.

Speaker #3: Yeah, I mean, each market has a slightly different power cost, right? Labor cost. Your consumables are pretty fixed across the markets with our bulk purchasing.

Obie Strickler: Yeah. Each market has a slightly different power cost, labor cost. Your consumables are pretty fixed across the market, so kind of our bulk purchasing. Your nutrients, your soil medium, your IPM is pretty consistent. You get a little bit of difference in power. I think the big driver is around labor. Labor costs are different in each market. Again, we'll have a little bit of influence on ultimate cost kind of control. I think the biggest driver, Jersey is still not where we expect it to be. The big driver there is power's a little bit more expensive. I would say labor's a little bit more expensive, but not material enough to have that big of a delta. The biggest driver there is, A, we need to get our yields up a little bit, and the team understands that.

Speaker #3: So, like your nutrients, your soil medium, your IPM is pretty consistent. And so you get a little bit of difference in power. I think the big drivers around labor—labor costs are different in each market.

Speaker #3: Again, we'll have a little bit of influence on cost—ultimate cost kind of control. I think the biggest driver—Jersey is still not where we expect it to be.

Speaker #3: The big driver there is power is a little bit more expensive. I would say labor is a little bit more expensive. But not material enough to have that big of a delta.

Speaker #3: The biggest driver there is, A, we need to get our yields up a little bit, and the team understands that. We had a leadership change in our cultivation department in the last couple of months, which we're very excited about.

Obie Strickler: We had a leadership change in our cultivation department in the last couple months, which we're very excited about. You also got to remember, we're carrying fully loaded costs of key management personnel and facility costs against what's now, what, 10,000 to 16,000, 67% of the production capacity. So just naturally through turning on the rest of the facility, you have one director of cultivation, whether it's 8,000 square feet or 16,000 square feet, you still have that one cost. We'll expect to see that driving down a little bit. Facility cost is the other kind of variable, which we'll see in other markets that we get into. Obviously, the Minnesota building is materially more expensive than what we pay in Oregon. Oregon and Michigan have really good cost structures when it comes to some of that, just foundational baseline pieces. Jersey's got a little bit more expensive rent.

Speaker #3: But you also got to remember we're carrying fully loaded costs of key management personnel and facility costs against what's now, what, 10,000 to 16,000, 60, 70 percent of the production capacity.

Speaker #3: So just naturally through turning on the rest of the facility, like you have one director of cultivation, whether it's 8,000 square feet or 16, you still have that one cost.

Speaker #3: And so, we'll expect to see that kind of driving down a little bit. Facility cost is the other kind of variable, which we'll see in other markets that we get into. Obviously, the Minnesota buildings are materially more expensive than what we pay in Oregon.

Speaker #3: Oregon and Michigan have really good cost structures when it comes to some of that just foundational, like baseline pieces. Jersey's got a little bit more expensive rent, but so there'll be little variables.

Obie Strickler: There'll be little variables, and I'm not saying we can get sub-CAD 300 in every state. I think sub-CAD 5 is definitely a goal, and a sub-CAD 4, and this is flower only, is extremely reasonable. The other thing I think to think about when you think about Michigan, right? That CAD 277 is flower only. If you add trim into that, we're definitely below sub-CAD 200 a pound full biomass cost of production at this point for indoor production, which is, if there's anyone else doing it at that level, I'd love to talk to them. It's a record for Grown Rogue, and I would argue that it might be one of the better costs on a true apples-to-apples basis that anyone in the industry's seen.

Speaker #3: And I'm not saying you can get sub-300 bucks in every state, but I think sub-5 is definitely a goal and sub-4, and this is flower only, is extremely reasonable.

Speaker #3: The other thing I think to think about when you think about Michigan, right, that 277 is flower only. If you add trim into that, we're definitely below sub-200 pound full biomass cost of production at this point for indoor production, which is, I mean, if there's anyone else doing it at that level, I'd love to talk to them, but it's, I mean, it's a record for Grown Rogue.

Speaker #3: And I would argue that it might be one of the better costs on a true apples to apples basis that anyone in the industry has seen.

Brian Park: Great. Thank you.

Speaker #5: Great. Thank you.

Operator: There are no more questions at this time. I would now like to turn the conference back to Obie.

Speaker #4: There are no more questions at this time. I would now like to turn the conference back to Obie.

Speaker #3: All right. Everyone, thank you for joining. Appreciate the time and energy. And like I said, we're head down just doing our work and really excited about where 26 is going to end up with Jersey Illinois, Minnesota, and yeah, looking forward to finishing up this year and really excited about this kind of step change that's going to come into 27 as we get two more states online, and then Jersey fully constructed.

Obie Strickler: All right, everyone. Thank you for joining. Appreciate the time and energy, like I said, we're head down just doing our work and really excited about where 2026 is going to end up with Jersey, Illinois, Minnesota. Yeah, looking forward to finishing up this year and really excited about this step change that's going to come into 2027 as we get two more states online and then Jersey fully constructed, especially where we're seeing Oregon and Michigan operate now. Yeah, look forward to talking to you all in 3 months or so from now. If you've got any questions in the meantime, feel free to reach out. Always good to talk to folks and explain about what we're doing in our business. I appreciate you for taking time out of your day to come listen. Thank you.

Speaker #3: Especially where we're seeing Oregon and Michigan kind of operate now. So yeah, look forward to talking to you all and three months or so from now.

Speaker #3: If you got any questions in the meantime, feel free to reach out. So always good to talk to folks and explain about what we're doing in our business.

Speaker #3: But I appreciate you for taking time out of your day to come listen. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.